Adani Group unit Ambuja Cement is to acquire Hyderabad-based Penna Cement at an enterprise value of ₹10,422 crore, adding to its capacity and market share in southern India. Mumbai-headquartered Ambuja Cement will acquire 100% of Penna Cement from existing promoter group P Pratap Reddy and family, the company said in a stock exchange filing.
Penna Cement has around ₹3,000 crore of debt, including fund, non-fund debt and inter-corporate deposits, according to sources.
Of the enterprise value, Ambuja Cement will hold back around ₹3,500 crore as milestone payments for completion of 2 million tonne (MT) cement capacity and 3 MT clinker facility at Penna’s Rajasthan plant, which is likely in a year.
Acquisition to be Funded Through Internal Accruals
ET was the first to report in its June 13 edition that the Adani Group is in talks to acquire Penna Cement. The group is also evaluating other cement companies for acquisition, including Gujarat-headquartered Saurashtra Cement and the cement business of Jaiprakash Associates, as well as ABG Shipyard-owned Vadraj Cement, ET had reported, adding that it has a war chest of $3 billion for these purchases.
The acquisition will be funded through internal accruals. For a capacity of 14 million tonnes per annum (MTPA), the valuation works out to $89.15 per tonne. Sources added that the company would be able to add another 3 MT capacity in Rajasthan because of the surplus clinker facility which would further reduce the cost. The Adani Group’s acquisition of Sanghi Cement with a capacity of 6.1 MTPA – announced late last year – was at $100 EV per tonne.
Ambuja Cement has cash and cash equivalents of ₹24,338 crore after the promoter infused ₹8,339 crore through warrants in April 2024.
The acquisition of Penna Cement will increase the total capacity of the Adani Group to 89 MTPA, thus accelerating its progress toward the target of 140 MTPA by 2028. The acquisition “will improve Adani Cement’s market share pan India by ~2%, south India by ~8%”, the company said.
“By acquiring PCIL (Penna Cement Industries Ltd), Ambuja is poised to expand its market presence in south India and reinforce its position as a pan-India leader in the cement industry,” Ajay Kapur, CEO and whole-time director at Ambuja Cement, said in the statement. “PCIL’s strategic location and sufficient limestone reserves provide an opportunity to increase cement capacity through debottlenecking and additional investment.”
The bulk cement terminals (BCTs) will prove to be a “gamechanger” by giving access to the eastern and southern parts of peninsular India, apart from entry to Sri Lanka through the sea route, he said, adding that the aim is to make PCIL competitive on cost and productivity and improve operating performance.
Of Penna Cement’s 14 MTPA capacity, 10 MTPA is operational. The rest is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and is expected to be completed within 6-12 months. Penna Cement operates assets in Andhra Pradesh and Telangana. Additionally, it will bolster the Adani Group’s cement sea transportation logistics with five bulk terminals located at Kolkata, Gopalpur, Karaikal, Kochi and Colombo, catering to peninsular India.
In its October 2023 rating report, India Rating and Research downgraded the Penna Cement debt rating to ‘IND BBB+’ from ‘IND A’ and placed it on rating watch with negative implications. According to the release from India Rating, the downgrade reflects the likelihood of a weaker-than-expected performance of PCIL in FY24, given its EBITDA loss in 5MFY24, resulting in a deterioration of the liquidity position. The management has indicated that it is in advanced discussions to monetise its power assets and aims to complete the transaction by 3QFY24.
Source: Economic Times